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The New Deal and right-wing revisionism
By Scott Lehigh, Globe Columnist | February 18, 2009

ONE OF THE most diverting aspects of the debate over President Obama's stimulus plan has been the concerted conservative attack on the New Deal.

One might have thought that voters of that day had pretty much settled the question of whether the New Deal worked by enthusiastically reelecting FDR, and not once but three times. But since right-wing revisionism is really an arrow aimed at the current stimulus plan, the effort to discredit the New Deal is worth examining.

The argument that the New Deal failed is easy to make.

You start with unemployment figures that exclude those who labored in work-relief programs like the WPA or its various cousins. Yes, that's passing strange, given the many worthwhile tasks those public employees accomplished, but sophistry has its demands.

Next you present a misleading juxtaposition of that exclusionary unemployment data, noting that the 19 percent joblessness rate in 1938 wasn't all that much better than the 25 percent of 1933, FDR's first year in office.

Then you add the well-worn 1939 quote from Henry Morgenthau Jr., FDR's treasury secretary, that government spending hadn't produced a recovery, and, for professorial effect, perhaps even toss in George Santayana's observation about those who cannot learn from history.

Presto: You've got yourself a paint-by-numbers conservative polemic.

But what do unemployment figures from the era actually show? The best regarded data excluding public-works employees traces a steady decline in joblessness through the first five years of the New Deal, from 25 percent when FDR took office to 14.3 percent in 1937. Then, however, joblessness rose, hitting 19.1 percent in 1938 before dropping back to 14.6 percent in 1940 and 9.9 percent in 1941.

Include work-relief employees, and unemployment declined more steeply, falling to 9.2 percent in 1937. It then rose to 12.5 percent in 1938 before dropping back to 6 percent in 1941.

Given that pattern, comparing 1938 with 1932 to argue that the New Deal didn't work is akin to claiming that the economy scarcely recovered under Ronald Reagan because unemployment, which hit 9.7 percent in 1982, was at 7.5 percent in 1992 under George H.W. Bush. It ignores the larger drop in joblessness in between.

Still, the New Deal debate does raise an interesting question: Why did Roosevelt's recovery falter?

Unfortunately for conservatives, the evidence cuts against their conclusions. The rise in unemployment followed FDR's cutback in government spending in 1937. The resulting spike in unemployment prompted him to shift courses and expand spending again, whereupon unemployment again fell.

Gross Domestic Product tracks the same way, notes economist Dean Baker, who has matched the increase in federal spending during each Depression year with the following year's growth in GDP. A 23.7 percent increase in federal spending in 1933 was followed by a 10.8 percent increase in GDP in 1934, for example, while a 34.2 percent increase in 1934 was followed by an 8.9 percent GDP increase in 1935. But when FDR retrenched and spending fell by 10 percent in 1937, the next year's GDP shrank by 3.4 percent.

Interestingly, one scholarly criticism of the New Deal is that federal spending wasn't expansionary enough at a time when other levels of government were slashing budgets. "[I]f we take the seven years from 1933 on, in only two was the federal share significantly more than enough to offset state and local shrinkages," MIT economist E. Cary Brown wrote in his well-regarded study of the era.

There's virtually no disagreement that World War II gave the country the strong final tug out of the Depression. Yet that reality also argues for the efficacy of Keynesian remedies; economically, the war constituted a huge government stimulus, financed by massive deficit spending.

In sum, determined efforts at revisionism notwithstanding, the New Deal was hardly a failure. It's more accurate to say that it was a success, but a limited one - and that there are important lessons to be learned from its shortcomings.

But those lessons would be hard for conservatives to square with their beliefs.

The following is abridged from a speech delivered at “Evenings at FEE” in July 2004.
The Great Depression of the 1930s was in many ways the defining economic event of the 20th century. President Franklin Delano Roosevelt used the atmosphere of crisis created by the Depression to implement a series of government programs known as the New Deal, which caused radical centralization of federal power. For decades historians romanticized the New Deal, and only recently have scholars begun to peel away the layers of mythology surrounding that era. Three of those myths seem the most pervasive and damaging.

Myth Number One: The New Deal helped get us out of the Great Depression.

Myth Number Two: The New Deal was a political success as well as an economic success.

Myth Number Three: Roosevelt was widely respected.

"If every poor man is to come here and start requesting money for all his children, the applicants will never be satisfied and the nation's finances will collapse." Emperor Tiberius: Tacitus:Annals